Part 2: Electronic Commerce
a. New Zealand's Response in the Global Context
72. Among OECD members there is broad agreement with the thesis that electronic commerce is revolutionising business and international trade. The next few years will be viewed as a crossroads in the development of the world economy. Successful companies in five years time will ipso facto be Internet companies - that is, whatever the product or service, the Internet will play an integral role in some aspect of supply, production, delivery or customer service. Those who do not act will be out of the game. The recent merger of Time-Warner and AOL and then the subsequent agreement of the new mega-company with EMI can be seen in this context.
73. In recognition of the radical nature of this change, OECD members have devoted significant resources to both ecommerce policy development and to developing programmes to encourage uptake, particularly among SMEs. They view facilitating the uptake of ecommerce as strategically important. This is because ecommerce, and the wider Internet economy, are becoming significant drivers of economic growth. For example, a recent Australian study has shown that the adoption of ecommerce will contribute an extra 2.7% to Australia's GDP over the next ten years.14 As well, ecommerce is changing the rules for business, and governments have seen their role as assisting business to adjust.
74. The emphasis other OECD members - and indeed a number of developing countries - are placing on electronic commerce and its facilitation calls into question New Zealand's commitment to electronic commerce and our consequent ability to maintain competitiveness in the future. It is true to say that some excellent progress has been achieved in a number of areas, and that New Zealand is not that far behind the leading ecommerce nations. However, in general terms New Zealand is not doing enough, fast enough, to reap the full benefits of electronic commerce, or continue to keep pace with our major trading partners. Indeed, a further threat is that developing countries such as India will make the leap more rapidly and successfully.
b. Strengths: Legislative Reform is Ready to Go!
75. The Ministry of Commerce published the Government Statement on Electronic Commerce in November 1998: Electronic Commerce - the Freezer Ship of the 21st Century. Following that Commerce established and chaired an interdepartmental officials committee to oversee the Electronic Commerce Work Programme.
76. The Electronic Commerce Work Programme has raised awareness in a number of policy areas such as Justice (hacking) IRD, Treasury and Consumer Affairs. The main focus in 1999 was on supporting the work of the Law Commission in assessing what laws need to be changed to facilitate electronic commerce. Our contribution to ecommerce work in APEC was also focused on promoting the UNCITRAL Model Law on Electronic Commerce as a means of creating a seamless international legal framework. The Law Commission's work is world class, and if that work is translated into legislation before the end of 2000 via the proposed Electronic Commerce Transactions Bill, then New Zealand's legislative and regulatory environment will be among the best. This would be an excellent way of getting some quick runs on the board.
77. Our consumer and privacy law combined with self-regulation already in place, means that we have little specifically "ecommerce:" work to do in these areas, unlike many other countries. We have made an excellent contribution to the development of the OECD Guidelines on Consumer Protection for Electronic Commerce and have taken an active part in international Internet "sweep" day activities designed to identify poor practices and highlight the need for appropriate standards of consumer protection on the Internet. As well New Zealand is leading new electronic commerce consumer protection work within APEC.
78. The IRD believe our current tax regime to be sound in terms of ecommerce.
79. We have a competitive Internet Service Provider market delivering a high penetration of Internet access at an affordable price - a sound basis for the growth of ecommerce.
80. There are substantial private sector ecommerce initiatives.
81. The Ministry of Commerce has also facilitated publication of the broader ITAG Knowledge Economy report and has itself published the Bright Future document. The Ministry hosts the Government's Ecommerce Web Site and in conjunction with MFAT organised the APEC Electronic Commerce Steering Group meeting in Auckland. Progress reports to Cabinet on ecommerce initiatives have been provided on a quarterly basis.
82. In September 1999 the State Services Commission published the Government's E-Government Vision Statement. The e-government initiative has been driven by a sub-group of the Public Sector CEs Forum and is largely focused on a range of electronic government projects rather than policy issues. There are already some excellent applications of ecommerce in the delivery of some government services, and more are on the way.
83. The following are also in the pipeline:
- Following the Law Commission's reports on ecommerce it is planned to introduce an Electronic Transactions Bill into the House as soon as possible.
- The Ministry of Commerce is preparing a report on the Digital Divide - that is the growing gap between the information haves and have-nots. This report is part of the output programme of the IT Policy Group and is a follow up to the earlier ITAG Knowledge Economy report. Officials in other departments are being consulted in the preparation of the report and it is programmed for completion in June 2000.
- It is proposed to update the Freezer Ship publication.
- The ecommerce web site is to be extended to include case studies for businesses to learn from.
- The Ministry of Consumer Affairs is updating its 1997 Report - Electronic Commerce and the New Zealand Consumer.
- Policy work has commenced on the Labour Online initiatives
c. Weaknesses: Lack of Awareness, Co-ordination and Commitment
84. The overarching problems the Government must address with respect to electronic commerce are:
- A lack of awareness across-the-board of the strategic importance of ecommerce to the economic and social wellbeing of New Zealanders;
- The lack of co-ordination in addressing ecommerce issues across departments;
- A pressing need for accurate, timely and pertinent information for policy decision making, reporting and awareness. The availability of key statistical information to inform decision making and policy analysis will be critical;
- A lack of analysis of the availability of skilled workers for both core and peripheral ICT industries;
- A lack of agreed vision and action between central and local government on how to utilise ICT to best effect;
85. We said in the Government Statement on Electronic Commerce published in November 1998 that ecommerce cuts across the entire economy, affecting tax, consumer affairs, privacy, commerce and trade as well as having social implications.
86. What we implied - but didn't make explicit - is that adopting electronic commerce is of fundamental strategic importance to the future economic and social well being of New Zealand.
87. The underlying weakness then is that electronic commerce is still seen by many in the public and private sectors as an add-on - something that is happening at the periphery. Consequently progress in the Electronic Commerce Work Programme (for example) has been patchy, and dependant on the level of commitment demonstrated by individual departments. Good progress has only been made in those specific areas with a commercial sector imperative, notably the legislative environment, consumer affairs, trade, and commercial sector government services
88. As yet there has been no substantial analysis undertaken of the impact of IT and the Internet on policy, legislative or regulatory issues. Nor has any work been done on the impact on future requirements in the labour market and what implications that might have for education and skill development. A particularly frustrating gap is the lack of statistics on electronic commerce transactions, particularly international transactions. Most government departments view IT and the Internet with an internal focus, in terms of usefulness for administration and service delivery.
89. Indeed it could be said that the examples of success set out above have occurred in spite of the resources we apply to electronic commerce, and literally by passing the hat around to fund some of the Law Commission activities
90. With respect to the E-Government work, this has developed independently of the Electronic Commerce Work Programme, and there needs to be co-ordination between the two in terms of policy and legislative implications.
91. In addition, anecdotal evidence suggests that New Zealand currently lacks the necessary human capability required to fully take advantage of the economic and social opportunities facilitated by ICT, and this may be a critical constraint on the economy.
92. A recent American study (http://www.internetindicators.com) defined four layers within the Internet economy, some of which require people skilled in a variety of core ICT areas, and others in wider e-commerce areas. These include;
- Infrastructure - communication companies, ISPs, network hardware/software manufacturers
- Applications - software and services to facilitate web transactions and transaction intermediaries
- Intermediaries -online brokers, content aggregators, portals, advertisers
- Commerce - e-tailers, direct sellers of services
93. While countries such as the US and Australia have concentrated their skill shortage concerns around skills traditionally associated with core IT, the above model is useful because it illustrates how ecommerce requires a much wider range of skills. As well, an economy based on high skills and high value added activity demands an ample supply of managerial talent to assist with the numerous start-up and spinout companies required.
94. Both Australia and Canada face losses of their IT talent to America, which continues to attract skilled IT immigrants from Asia as well.15 New Zealand too is suffering a brain drain. Given the competitive international market and global shortage of ICT and ecommerce skills, New Zealand will need to identify how to develop rapidly the human capital it needs in these areas. International opinions vary as to whether the solution lies in "buy" or "grow" approaches.
95. In countries such as Australia, the UK, Ireland and the US, governments are working in a structured way with industry and the education sector to increase the number of people with the skills to participate in ICT industries, and therefore advance the development of ecommerce.
96. In the New Zealand context policies aimed at developing human capital will need to take account of the fact that 80 percent of the labour force of the next ten years is already in the labour force. An appropriate response is likely to include initiatives to both "buy" and "grow", where "grow" includes both on-the-job training and retraining.
d. Opportunities: Taking New Zealand to the Next Level
97.In the next three years electronic commerce has the potential to be a key driver of economic growth, both nationally and regionally, have a positive impact on economic and social cohesion, improve delivery of government services, and be a crucial part of New Zealand's developing knowledge based economy.
98. Electronic commerce offers huge opportunities for New Zealanders, especially SMEs, to develop entirely new high value products and services, add value to existing products and services, reduce costs, develop new export markets, and add value to existing activities including those in the primary sector. Interestingly, a recent study by the US Centre for Energy and Climate has shown that the growth of efficient information based technologies, particularly the Internet, has been a significant factor in a major drop in energy consumption. Hence facilitating the uptake of ecommerce also assists the Government's goal of creating an environmentally sustainable economy.
99. Because New Zealand is a small country with an open flexible economy, and with some distinctive strengths already in terms of ecommerce, we can catch up with the leading ecommerce countries relatively quickly. Indeed the recent Y2K experience has shown that, despite frequent allegations of too little too late, we achieved world class results at relatively little cost. This was in no small part due to our small size being a positive advantage allowing the major players in the economy to easily communicate and share information - a textbook example of the power of networks.
100. However, for New Zealand to fully capitalise on ecommerce opportunities will demand a commitment from the highest levels. Electronic commerce and the larger knowledge economy strategy need to move from the periphery into the centre of everyone's thinking. Ecommerce and its effects need to be factored into all relevant areas of policy. We need a committed and sustained intellectual effort.
101. Up until the end of 1995 Bill Gates had dismissed the Internet as a peripheral player in the burgeoning technology scene. Then he realised that he had read the future wrongly, and on 7 December 1995 radically changed Microsoft's strategy to make it into an Internet company. Microsoft literally stopped a number of projects on that day and committed those resources to the Internet. Gates moved the Internet from the periphery to the centre, and the share price has continued to climb ever since - the US Department of Justice notwithstanding.
102. As a country New Zealand must take a similar step if it is to navigate the changes being brought by the Internet and ecommerce and ascend to a new level of prosperity. Government, public institutions and the private sector must place the Internet at the centre of their thinking. The alternative is to risk continued relative decline.
103. Having said that, there is a danger of falling prey to ICT and ecommerce evangelism. ICT is a powerful tool that will deliver some highly valuable benefits, but is not an answer in and of itself. There was a similar danger with Y2K. Doomsayers believed the end of the world was nigh, and nay-sayers believed the whole thing was a computer programmers plot to make money. The approach of the Y2K Readiness Commission was to take a middle way based on openness and co-operation. This worked very well. With electronic commerce we need a similarly measured approach based on sound policy principles, but which also takes account of the need for speed.
e. Threats: Lost Opportunities, Widening Gaps
104. Electronic commerce cuts across the whole economy. A survey of CEOs from around the world by PriceWaterhouseCoopers revealed that half foresee the greatest threat coming from non-traditional competitors entering their industries through electronic channels. Nearly two-thirds of executives from the European sample see electronic business reshaping their own industries in the next several years.
105. Government departments through the Government E-Vision statement are beginning to see the potential of ecommerce to deliver their services and information electronically. Many have yet to see the potential for electronic commerce to affect their areas of policy advice.
106. While electronic commerce offers huge opportunities for New Zealanders, every other country is identifying the same opportunities. The threat for New Zealand is that, in failing to make the commitment to becoming an Internet focused economy, we become less competitive and lose the opportunity of cashing in on the creation of new high value products and services. New competitors will cut us out of both traditional and new markets.
107. Another scenario is that we will become a sharply divided nation between those who are wired, literate and info-rich and those who lack access and technical literacy.
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